Cabinet clears new price formula for undeveloped gas discoveries

New Delhi: In a boost to firms like ONGC and Reliance Industries, the Cabinet today approved a new price formula for their undeveloped gas discoveries in difficult areas, which will lead to a near-doubling of rates.

While domestically-produced gas is currently priced at an average of rates in gas-surplus countries like the US, Canada and Russia, for deep-sea discoveries yet to be developed, the Cabinet Committee on Economic Affairs (CCEA) approved a price indexed to cost of alternative fuels -- naphtha and fuel oil as well as imported LNG.

Oil Minister Dharmendra Pradhan told media that the price will be the lowest of weighted average of fuel oil and imported LNG or weighted average of fuel oil, naphtha and imported coal.

With the current rates, the price of gas will come to USD 7 per million British thermal unit (mmBtu).

Gas price in India is currently at USD 3.82 per mmBtu, which will fall to USD 3.15 in April, a rate not enough to make up for the cost of deep-sea development.

Since this rate is not enough to incentivise exploration, the government approved the new price formula for undeveloped gas discoveries in deep-sea, ultra-deep sea and high-temperature, high-pressure areas using average of landed price of naphtha, fuel oil and liquefied natural gas (LNG), he said.

About two dozen discoveries of the state-owned ONGC, Reliance Industries and the Gujarat State Petroleum Corporation (GSPC) in KG Basin alone are languishing for want of right price.

Finance Minister Arun Jaitley, in the Budget 2016-17, had announced a two-stage gas pricing freedom.

With near stagnation in domestic production and consequent rapid increase in imports, "the government is considering incentivising gas production from deep-water, ultra deep-water and high-pressure, high-temperature areas, which are presently not exploited on account of higher cost and higher risks," he said.